Effective Interest Rate Calculation Models for All Types of Loans

April 25, 2012BSP MEMORANDUM NO. M-2012-020TO:Entities with Credit-Granting Facilities Not Covered by Existing Issuances on the Truth in Lending Act by the Bangko Sentral ng Pilipinas (BSP), Securities and Exchange Commission (SEC), Insurance Commission (IC) and Cooperative Development Authority (CDA)   SUBJECT:Effective Interest Rate Calculation Models for All Types of Loans Relative to the implementation of Circular No. 755 dated 20 April 2012 on implementing guidelines of Republic Act. No. 3765, the Truth in Lending Act, to entities with credit-granting facilities not covered by existing issuances on the Truth in Lending Act by the BSP, SEC, IC and CDA, Effective Interest Rate (EIR) calculation models illustrative of common loan features are presented herewith (Annexes A to E) for guidance. It is understood that an EIR calculation model, founded on established principles of discounted cash flow analysis, should be based on the actual loan features. Subject entities shall be solely responsible for the propriety and accuracy of the EIR calculation model. However, for purposes of determining compliance with Circular No. 755, the BSP's determination of the reasonableness...